Baht set to hit 35 against US dollar

The currency opened yesterday at 34.03 per dollar and continued to weaken. By close, it had touched 34.15.

A dealer said the Bank of Thailand (BOT) stepped into the market to slow down its rapid slide.

Usara Wilaipich, senior economist at Standard Chartered Bank (Thai), said the baht would continue to slide to 34.5 against the greenback in September and head to 35 in the fourth quarter.

She attributed the depreciation of other currencies against the dollar and domestic political uncertainty for the weakening baht.

"The baht will continue to depre¬ciate until the political situation improves and concerns over the glob¬al economic slowdown have been priced in," said the economist.

BOT Governor Tarisa Watanagase said the Monetary Policy Committee would look into whether the depre¬ciation of the baht would have a sig¬nificant impact on inflation.

"The central bank has closely kept an eye on the baht," she said.

Some market watchers think the BOT has allowed the currency to weaken.

"The central bank hasn't really shown any great initiative to protect the baht," Craig Chan, a cur¬rency strategist at Lehman Brothers Holdings in Singapore, was quoted by Bloomberg as saying.

"Inflation will probably head into double digits pretty soon. There is the risk this one country in Asia is lagging behind the curve on the rate policy front."

Investors have shorted the global key currencies for the dollar amid fears of economic recession. Japan, the United Kingdom, Singapore and the eurozone nations are at risk of technical recession.

The investors have already priced in the subprime crisis in the United States, although the problem has not yet been corrected.

Moreover, Usara said investors have also been concerned that Asian economies, including that of Thailand, will slow down in the sec¬ond half rather than the first half of the year.

It was a result of sluggish exports affected by the economic slowdown in key trading partners.

The prolonged political uncer¬tainty has also dampened foreign investors' confidence, leading to cap¬ital outflows in portfolio investment.

"If foreign investors are worried that Asian economies will be adverse¬ly affected by the economic slowdown in developed countries, they will proj¬ect depreciation of the currency.

And they will not yet bring the money back into the Kingdom," Usara said.

Usara said although the Kingdom's exports expanded by 24 per cent in the first half of the year, some products had already grown slowly or contracted, such as inte¬grated circuits.

She expected the BOT to raise the policy interest rate just one time before reversing its stance by cut¬ting the key rate next year to boost growth.